The strategic position of Indonesian small businesses

By Tony Agus Ardie

JAKARTA (JP): To overcome the negative impact of the economic crisis in Indonesia, President Abdurrahman Wahid has given first priority to creating the maximum number of job opportunities.

This policy is indeed strategic and timely to enhance the productivity of the huge labor force and to promote justice.

It has been known for a long time that the people's economy, which mostly consists of small and medium enterprises, plays the role of "safety valve" in avoiding potential economic and social disturbances. Small and medium enterprises absorb unemployment, feed families and other dependents, and are reliable taxpayers.

Now it is the right time to transform political will into political courage, to implement through real policy action that empowers small and medium enterprises to maintain their productive capacity.

The majority of Indonesians live in rural areas. Most work as farmers, fishermen, and laborers with very little entrepreneurial involvement. The unemployment rate among these groups is high.

To accelerate industrialization, as part of a development strategy to achieve high economic growth, many new factories were established in the big cities. As a result, unemployment is heavily concentrated in the villages. Without sufficient educational background and skills, workers go to the cities for job opportunities. The cities have become crowded with helpless people, causing multi-dimensional urban problems such as crime and homelessness.

Official statistics show that in 1998, there were 36.81 million enterprises throughout Indonesia, of which 36.76 million (99.85 percent) were small firms, 51,890 (10.01 percent) medium- scale businesses and 1,831 (0.14 percent) big companies. Their employment was 57.34 million, 6.97 million and 0.36 million respectively.

Small enterprises in the agricultural sector, including livestock, forestry and fisheries, were the largest employers with 62.83 percent of total employment in the small-business sector.

It therefore makes sense that the small-business sector should be empowered to provide more jobs and to increase the incomes of the majority of the people.

We must remember, however, that our national development goals are not only to develop the economy, but to achieve dignity and prosperity for the people. We have to keep the goals of economic development in the context of achieving a just and prosperous society, especially for those who are weak and underprivileged. The small and weak should be empowered to be more capable of becoming productive, and at the same time to produce value-added businesses.

This also will enhance economic justice, the absence of which is one of the main causes of social unrest in the provinces.

The economic crisis had been exacerbated by the high content of import components among our big industrialists. Economic globalization has fostered a more intensive global economic interdependency. But we have to be cautious that an interdependency can easily turn into a dependency.

In fact, the high import content of big industries has put many plants in a lot of trouble as the rupiah meltdown makes import costs astronomically high, thereby forcing companies to either slash production rates or stop production altogether.

This means that an emphasis on resource-based businesses will be more sustainable. As small and medium-scale businesses are based on domestic resources, they can better weather a currency crisis.

Using more domestic materials, besides adding value to the domestic economy, will also spread growth to many sectors.

In addition, the development of small and medium enterprises is instrumental to increasing the people's productivity, which further will increase their capacity to meaningfully participate in the economy. In other words, the national utilization of domestic and natural resources will certainly find its way into the small and medium sectors. This implies that economic growth takes place as a result of an even distribution of socio-economic opportunities.

The development and empowerment of small and medium enterprises will not only provide a positive economic impact to the poor and the weak, but it also will render a positive social impact -- it is economic value added as well as a socio-cultural value added. Enterprise improves the socio-economic prospects of the underprivileged.

One of the biggest challenges to the development of small and the medium-scale enterprises is the insufficiency of qualified entrepreneurship capability.

But we believe that entrepreneurial talent can be learnt, trained and developed, since it is not an inborn quality.

The other important thing is technical assistance in management, production and marketing. Small and medium-scale entrepreneurs must learn to understand the merits of competition.

But they certainly have to learn and understand the power of cooperation. Competition and cooperation are the twin economic powers which continuously move the economy. We have to refuse competition which produces free-fight liberalism. We have to cooperate to manage competition -- this is what we will call cooperation.

Indonesia has always accepted and implemented a market economy with different degrees of state intervention. What we reject is an unfair free market economy which leads to the practices of unjust free-fight competition. We must be cautious and remember that the market is only an economic instrument, not the economic master.

The government must constantly manage the market, and especially intervene in the resource allocation process to promote prosperity among the poor and the underprivileged. State intervention is necessary to overcome structural rigidities and to maintain the public interest.

First of all, we must build vertical and horizontal links and networks to consolidate all economic forces -- the small, the medium and the large entrepreneurs -- into a united and solid national economic entity.

Big businesses should not grow in isolation and become a closed economic enclave. They should continuously engage in mutual cooperation with small and medium-scale economic forces to face global challenges together.

Whatever the business, several important socioeconomic targets can be achieved through the promotion of small and medium-scale enterprises. These include; the development of regional and sub- regional economic potential to generate income; the creation of employment opportunities; the prevention of urbanization; and the strengthening of regional and sub-regional competitive advantages.

The people's economy, which mostly consists of small and medium-scale enterprises, has proven its resilience and sustainability.

In time of economic stagnation and crisis, most small and medium-scale enterprises have been capable of providing affordable basic needs for the people. An empowerment policy for small and medium-scale enterprises is therefore imperative.

The writer is the president of the Indonesian Chamber of Commerce and Industry U.S. Committee which focuses on the development of business links between Indonesian and American companies.